By Kane Wu and Junko Fujita
HONG KONG/TOKYO (Reuters) - Bain Capital is planning on further ramping up its dealmaking in Japan after it came out on top in the recent battle to purchase Toshiba's semiconductors arm and as it bids to buy out Japan's third-largest advertising agency, Asatsu-DK (ADK).
In making further acquisitions, the Boston-based Bain would cement its position as one of the most active private equity firms in Japan and help to break down a corporate culture that has been mostly hostile to foreign investors.
"Japan is a hard market. It takes years to build teams, relationships, credibility," said David Gross-Loh, who is Bain's co-head of Asia and is in charge of its business in Japan, in an interview. "I wouldn’t be surprised that five years from now we'll have twice as many deals as we do now."
Japan's private equity market is small relative to its economy, the world's third largest. This year, though, the Toshiba acquisition has pushed private equity-backed deals in Japan to a record $22 billion - more than double 2016's $8 billion, according to Thomson Reuters data.
From 2007 to 2016, some 30-40 buyout deals on average were struck annually with slightly fewer exits each year, according to data provider Preqin. And both deals and exits have been worth a fraction of those done in China every year.
Yet this year has seen a pick up in interest, industry sources say, in part thanks to significant volumes of cash raised in 2016 as funds look to Japan. They are hoping to cash in on demographic shifts -- such as the nation's aging population - changes in corporate governance standards and a more active initial public offering market allowing for future exits.
Bain led a group of investors, including Apple, SK Hynix <000660 KS>, Dell, Seagate Technology Plc and Kingston Technology that agreed to pay $18 billion for the Toshiba chips business after a mammoth bidding battle.
FORGING TIES
Bain is one of several global private equity firms that opened offices in Japan before the global financial crisis, but it has bet on its own team to forge relationships, rather than rely on banks or advisers - a slower process.
And American rivals have also piled in. KKR & Co is looking to deploy more money in Japan after completing a string of investments, while Carlyle Group targets companies in the upper-mid size with its Japan fund, while seeking larger deals with its funds in other global regions.
Another global name, Blackstone Group, will remain focused on real estate in Japan, a person familiar with the firm said.